SEC Likely to Reject Ethereum Spot ETF Applications, Insiders Say

While spot Bitcoin exchange-traded funds (ETFs) have received approval, the outlook for spot Ethereum ETFs appears less favorable. According to a Reuters report, sources familiar with recent discussions between ETF issuers and the SEC indicate that the agency is poised to reject spot Ethereum ETFs during their upcoming final review next month.

VanEck's and ARK's ETF filings are due for decisions on May 23 and May 24, respectively. However, recent talks have reportedly lacked substantive engagement from SEC staff regarding the proposed Ethereum ETFs, contrasting with the detailed discussions preceding the approval of spot Bitcoin funds. This lack of engagement suggests a probable rejection, according to four individuals involved in the meetings with the SEC.

Furthermore, despite ETF issuers' arguments citing the approval of spot Bitcoin ETFs and Ethereum futures-based ETFs as precedent, the SEC's silence on specific concerns implies an impending rejection.

According to SEC records and sources, there have been few meetings regarding the spot Ethereum ETF review, with only one public meeting held with Coinbase regarding Grayscale's bid to convert its Ethereum Trust into an ETF, with Coinbase as the custodian.

If the SEC were to reject Ethereum ETFs, applicants speculate that the reason might revolve around broader issues such as concerns about the quality and depth of market data regarding Ethereum.

Matt Hougan, Chief Investment Officer at Bitwise Asset Management, one of the spot Ethereum ETF applicants, suggests that the SEC may require more time to assess the Ethereum futures market before making a decision.

This approach contrasts sharply with the intensive and detailed dialogue preceding the SEC's approval of spot Bitcoin ETFs in January. Historically, the SEC had rejected spot Bitcoin ETFs due to concerns about market manipulation, but they were eventually compelled to approve them following a successful court challenge by Grayscale Investments.

Analysts at JPMorgan have previously suggested that if the SEC denies the spot Ethereum filings, ETF issuers may initiate legal action against the agency, potentially compelling the SEC to review and approve these products.

Given the current circumstances, VanEck CEO Jan van Eck has expressed an expectation of rejection, stating in a recent CNBC interview that both VanEck's and ARK Invest's applications would likely be rejected initially.